QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2012

OR

[ ]

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _____ to _____

Commission file number 001-34688

Tengion, Inc.

(Exact name of registrant as specified in its charter)

Delaware

20-0214813

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer Identification No.)

3929 Westpoint Boulevard, Suite G

Winston-Salem, NC 27103

(336) 722-5855

(Address of principal executive offices)

(Registrant’s telephone number,

including area code)

Not Applicable

(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes x No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer or a non-accelerated filer, as defined in Rule 12b-2 of the Exchange Act.

Large accelerated filer o

Accelerated filer o

Non-accelerated filer o

Smaller reporting company x

Indicate by check mark whether the registrant is a shell company, as defined in Rule 12b-2 of the Exchange Act.

Yes o No x

As of May 7, 2012, there were 24,665,818 shares of the registrant’s common stock outstanding.

Tengion, Inc. (the Company) was incorporated in Delaware on July 10, 2003. The Company is a regenerative medicine company focused on discovering, developing, manufacturing and commercializing a range of neo-organs, or products composed of living cells, with or without synthetic or natural materials, implanted or injected into the body to engraft into, regenerate, or replace a damaged tissue or organ. Using its Organ Regeneration Platform, the Company creates these neo-organs using a patient’s own cells, or autologous cells. The Company believes its proprietary product candidates harness the intrinsic regenerative pathways of the body to regenerate a range of native-like organs and tissues. The Company’s product candidates are intended to delay or eliminate the need for chronic disease therapies, organ transplantation, and the administration of anti-rejection medications. In addition, the Company’s neo-organs are designed to avoid the need to substitute other tissues of the body for a purpose to which they are poorly suited.

Building on its clinical and preclinical experience, the Company is initially leveraging its Organ Regeneration Platform to develop its Neo-Urinary Conduit for bladder cancer patients who are in need of a urinary diversion and its Neo-Kidney Augment for patients with advanced chronic kidney disease. The Company operates as a single business segment. Operations of the Company are subject to certain risks and uncertainties, including, among others, uncertainty of product candidate development; technological uncertainty; dependence on collaborative partners; uncertainty regarding patents and proprietary rights; comprehensive government regulations; having no commercial manufacturing experience, marketing or sales capability or experience; and dependence on key personnel.

(2)

Management’s Plans to Continue as a Going Concern

The accompanying financial statements have been prepared on a going-concern basis, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business. The Company has incurred losses since inception and has a deficit accumulated during the development stage of $235.2 million as of March 31, 2012. The Company anticipates incurring additional losses until such time, if ever, that it can generate significant sales of its therapeutic product candidates currently in development or enters into cash flow positive business development transactions.

Based upon its current expected level of operating expenditures and debt repayment, and assuming it is not required to settle any outstanding warrants in cash, the Company expects to be able to fund its operations to September 2012. The Company intends to pursue additional sources of capital to continue its business operations as currently conducted and fund deficits in operating cash flows. There is no assurance that such financing will be available when needed or, if available, on terms acceptable to the Company. In the event financing is not obtained, the Company could pursue additional headcount reductions and other cost cutting measures to preserve cash as well as explore the sale of selected assets to generate additional funds.If the Company is required to significantly reduce operating expenses and delay, reduce the scope of, or eliminate one or more of its development programs, these events could have a material adverse effect on the Company's business, results of operations and financial condition.

These factors could significantly limit the Company's ability to continue as a going concern. The financial statements do not include any adjustments relating to recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that might be necessary should the Company be unable to continue in existence.

- 6 -

Tengion, Inc.

(A Development-Stage Company)

Notes to Financial Statements

(unaudited)

(3)

Basis of Presentation and Reverse Stock Split

The accompanying unaudited financial statements have been prepared in accordance with U.S. generally accepted accounting principles (GAAP) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnote disclosures required by GAAP for complete consolidated financial statements. In the opinion of management, all adjustments (consisting only of normal recurring adjustments) considered necessary for a fair presentation have been included. These financial statements should be read in conjunction with the financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2011, as amended, filed with the Securities and Exchange Commission (SEC). The results of the Company’s operations for any interim period are not necessarily indicative of the results of operations for any other interim period or full year.

A reverse stock split of the Company’s common stock was effective March 24, 2010 at a ratio of one share for every 14.5 shares previously held. All common share and per-share data included in these financial statements reflect such reverse stock split.

(4)

Use of Estimates

The preparation of financial statements, in accordance with GAAP, requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of expenses during the reporting period. Actual results could differ from those estimates.

(5)

Net Loss Attributable to Common Stockholders Per Share

Basic and diluted net loss attributable to common stockholders per share is calculated by dividing net loss attributable to common stockholders by the weighted-average number of common shares outstanding. For all periods presented, the outstanding shares of common stock options and restricted stock, and preferred and common warrants have been excluded from the calculation because their effect would be anti-dilutive. Therefore, the weighted-average shares used to calculate both basic and dilutive loss per share are the same.

The following potentially dilutive shares have been excluded from the calculation of diluted net loss per share as their effect would be anti-dilutive:

Conversion of redeemable convertible preferred stock into 5,652 shares of common stock

—

—

191,909

Conversion of warrant liability

—

—

123

(7)

Short-term Investments and Fair Value of Financial Instruments

As of December 31, 2011 and March 31, 2012, the carrying amounts of financial instruments held by the Company, which include cash equivalents, prepaid expenses and other current assets, accounts payable, and accrued expenses, approximate fair value due to the short-term nature of those instruments. In addition, the carrying value of the Company’s debt instruments, which do not have readily ascertainable market values, approximate fair value, given that the interest rates on outstanding borrowings approximate market rates. See Note 12 for a discussion of fair value of the warrants.

As of December 31, 2011 and March 31, 2012, short-term investments consisted of investments in commercial paper and U.S. government agency and corporate securities of $6.1 million and $1.5 million, respectively. The Company has the ability and intent to hold these investments until maturity and, therefore, has classified the investments as held-to-maturity, which we carry at amortized cost. Due to the short-term nature of these investments, unrealized gains and losses have been deemed temporary and, therefore, not recognized in the accompanying financial statements. Income generated from short-term investments is recorded to interest income.

Fair value guidance requires fair value measurements be classified and disclosed in one of the following three categories:

·

Level 1: Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities;

·

Level 2: Quoted prices in markets that are not active, or inputs which are observable, either directly or indirectly, for substantially the full term of the asset or liability;

·

Level 3: Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (i.e., supported by little or no market activity).

- 8 -

Tengion, Inc.

(A Development-Stage Company)

Notes to Financial Statements

(unaudited)

The following fair value hierarchy table presents information about each major category of the Company’s financial assets and liabilities measured at fair value on a recurring basis as of December 31, 2011 and March 31, 2012 (in thousands).

Fair value measurement at reporting date using

Quoted prices in active markets for identical assets (Level 1)

Significant other observable inputs

(Level 2)

Significant unobservable inputs

(Level 3)

Total

At December 31, 2011:

Assets:

Cash and cash equivalents

$

9,244

$

—

$

—

$

9,244

Short-term investments

6,066

—

—

6,066

$

15,310

$

—

$

—

$

15,310

Liabilities:

Warrant liability

$

—

$

—

$

2,511

$

2,511

At March 31, 2012:

Assets:

Cash and cash equivalents

$

7,349

$

—

$

—

$

7,349

Short-term investments

1,517

—

—

1,517

$

8,866

$

—

$

—

$

8,866

Liabilities:

Warrant liability

$

—

$

—

$

3,034

$

3,034

The reconciliation of warrant liability measured at fair value on a recurring basis using unobservable inputs (Level 3) is as follows (in thousands):

Warrant liability

Balance at December 31, 2011

$

2,511

Change in fair value of warrant liability

523

Balance at March 31, 2012

$

3,034

The fair value of the warrant liability is based on Level 3 inputs. For this liability, the Company developed its own assumptions that do not have observable inputs or available market data to support the fair value. See Note 12 for further discussion of the warrant liability.

(8)

Restructuring Expenses

In November 2011, the Company’s Board of Directors approved a restructuring plan designed to fund the Company’s lead development programs through key milestones in 2012, eliminate plans to use its facility in East Norriton, Pennsylvania as a manufacturing center, and centralize its research and development operations in its leased facility in Winston-Salem, North Carolina. The Company has retained a few administrative employees in its facility in East Norriton, Pennsylvania, and is exploring options to significantly reduce the amount of space it currently rents.

The Company offered severance benefits to the terminated employees, and recorded a $1.7 million charge for personnel-related termination costs in the fourth quarter of 2011, of which $0.8 million was included in research and development expense and $0.9 million was included in general and administrative expense in the accompanying statements of operations. The Company expects to complete payment of these severance benefits by September 2012.

- 9 -

Tengion, Inc.

(A Development-Stage Company)

Notes to Financial Statements

(unaudited)

The following table summarizes the activity related to accrued severance benefits for the quarter ended March 31, 2012 (in thousands).

Accrued Severance Benefits

Balance at December 31, 2011

$

1,544

Net Charges paid

(1,056

)

Balance at March 31, 2012

$

488

(9)

Lease Liability

The Company entered into an agreement in February 2006 to lease warehouse space effective March 1, 2011, at which time the Company determined it was not likely to utilize the space during the five-year lease term. Therefore, the Company recorded a liability as of March 1, 2011, the cease-use date, for the fair value of its obligations under the lease. The most significant assumptions used in determining the amount of the estimated lease liability are the potential sublease revenues and the credit-adjusted risk-free rate utilized to discount the estimated future cash flows.

In connection with the restructuring described in Note 8, the Company determined it was not likely to utilize substantially all of the leased office and manufacturing space in its East Norriton, Pennsylvania facility during the remainder of the lease term. Therefore, the Company recorded a liability as November 30, 2011, the cease-use date, for the fair value of its obligations under the lease.

The following table summarizes the activity related to the lease liability for the quarter ended March 31, 2012 (in thousands).

Warehouse

space

Office and manufacturing

space

Total

Balance at December 31, 2011

$

828

$

854

$

1,682

Charges utilized

(59

)

(137

)

(196

)

Additional charges to operations

23

25

48

Balance at March 31, 2012

792

742

1,534

Less current portion

(227

)

(494

)

(721

)

$

565

$

248

$

813

(10)

Debt

Total debt outstanding consists of the following (in thousands):

December 31,

2011

March 31,

2012

Working Capital Note

$

5,000

$

4,627

Equipment and Supplemental Working Capital Notes

126

30

Unamortized debt discount

(139

)

(122

)

4,987

4,535

Less current portion

(2,205

)

(2,363

)

$

2,782

$

2,172

Working Capital Note

The Company has an outstanding working capital loan (the Working Capital Note) that was utilized to fund working capital needs of the Company. In March 2011, the Company refinanced the outstanding debt owed to its lender of the Working Capital Note. Pursuant to the terms of the refinancing, the Company simultaneously borrowed $5 million and repaid the then outstanding principal amount of $4.5 million. Borrowings under the Working Capital Note are secured by all assets of the Company, except for Intellectual Property and permitted liens that have priority, including liens on equipment subsequently acquired to secure the purchase price or lease obligation, as defined in the loan agreement. The Company was obligated to make interest-only payments through January 2012, followed by 24 monthly payments of principal and interest at an interest rate of 11.75% per annum. In connection with the refinancing, the Company granted a warrant to the lender to purchase 70,671 shares of common stock. The fair value of the warrant issued in connection with the refinancing was $0.1 million, using the Black-Scholes model. See Note 12 for further discussion on warrants.

- 10 -

Tengion, Inc.

(A Development-Stage Company)

Notes to Financial Statements

(unaudited)

The Company recorded interest expense related to the Working Capital Note of $0.2 million and $0.1 million for the three months ended March 31, 2011 and 2012, respectively. The relative fair value of the warrants issued to the lender of the Working Capital Note has been recorded against the carrying value as an original issue discount (OID), which is being amortized as interest expense over the term of the Working Capital Note. The Company recognized a noncash charge to interest expense of $55,000 and $17,000 for the three months ended March 31, 2011 and 2012, respectively, for the amortization of OID.

Equipment and Supplemental Working Capital Notes

In 2005, the Company executed a loan facility with another lender to fund equipment (the Equipment Note) and other asset purchases (the Supplemental Working Capital Note) from July 2005 through December 2010. Borrowings under the Equipment and Supplemental Working Capital Note are secured by equipment, as defined in the loan agreements. As of March 31, 2012, the Equipment Note and the Supplemental Working Capital Note bear interest at an average rate of 11.99% and 13.52%, respectively. The Company will make its final monthly principal and interest payment in April 2012 for each of the Equipment Note and the Supplemental Working Capital Note. The Company recorded interest expense related to the Equipment and Supplemental Working Capital Notes of $26,000 and $2,000 for the three months ended March 31, 2011 and 2012, respectively.

The relative fair value of the warrants issued to the lender of the Equipment and Supplemental Working Capital Notes has been recorded against the carrying value as OID, which is being amortized as interest expense over the term of the Equipment and Supplemental Working Capital Notes. The Company recognized a noncash charge to interest expense of $3,000 and $1,000 for the three months ended March 31, 2011 and 2012, respectively, for the amortization of OID.

(11)

Capital Structure

Initial Public Offering

In April 2010, the Company completed its initial public offering, selling 6,000,000 shares of common stock at an initial public offering price of $5.00 per share resulting in gross proceeds of $30.0 million. Net proceeds received after underwriting fees and offering expenses were $25.7 million. In connection with the closing of the initial public offering, all outstanding shares of the Company’s redeemable convertible preferred stock were converted into an aggregate of 5,651,955 shares of common stock, and all outstanding warrants to purchase preferred stock were converted into warrants to purchase 110,452 shares of common stock.

March 2011 Equity Financing

In March 2011, the Company closed a private placement transaction pursuant to which the Company sold securities consisting of 11,079,250 shares of common stock and warrants to purchase 10,460,875 shares of common stock. The purchase price per security was $2.83. The Company received net proceeds of $28.9 million. See Note 12 for discussion of the warrant liability.

In connection with the March 2011 equity financing, the Company filed a registration statement with the SEC for the registration of the total number of shares sold to the investors and shares issuable upon exercise of the warrants and the registration statement was declared effective by the SEC on May 16, 2011. The Company is required to use commercially reasonable efforts to cause the registration statement to remain continuously effective until such time when all of the registered shares are sold or such shares may be sold by non-affiliates without volume or manner-of-sale restrictions pursuant to Rule 144 of the Securities Act and without the requirement for the Company to be in compliance with the current public information requirement under Rule 144. In the event the Company fails to meet certain legal requirements in regards to the registration statement, it will be obligated to pay the investors, as partial liquidated damages and not as a penalty, an amount in cash equal to 1.5% of the aggregate purchase price paid by investors for each monthly period that the registration statement is not effective, up to a maximum aggregate payment of 6% of the purchase price paid by investors, except that if the Company fails to satisfy the current public information requirement pursuant to Rule 144(c)(1), the maximum aggregate payment would be 12% of the purchase price paid by investors. If the Company determines a registration payment arrangement in connection with the securities issued in March 2011 is probable and can be reasonably estimated, a liability will be recorded. As of March 31, 2012, we concluded the likelihood of having to make any payments under the arrangements was remote, and therefore did not record any related liability.

- 11 -

Tengion, Inc.

(A Development-Stage Company)

Notes to Financial Statements

(unaudited)

(12)

Warrants

We account for stock warrants as either equity instruments or derivative liabilities depending on the specific terms of the warrant agreement. Stock warrants are accounted for as derivative liabilities under FASB Accounting Standard Codification (ASC) 815, Derivatives and Hedging (ASC 815) if the stock warrants allow for cash settlement or provide for modification of the warrant exercise price in the event subsequent sales of common stock are at a lower price per share than the then-current warrant exercise price. We classify derivative warrant liabilities on the balance sheet as a current liability, which is revalued at each balance sheet date subsequent to the initial issuance of the stock warrant.

The following table summarizes outstanding warrants to purchase common stock as of December 31, 2011 and March 31, 2012:

Number of shares

Exercise price

Expiration

Equity–classified warrants

Issued to vendors

3,890

$

2.32

September 2015 through December 2016

Issued pursuant to March 2011 refinancing of Working Capital Note

70,671

$

2.88

March 2016

Issued to lenders

64,409

$

23.44

August 2013 through December 2016

Issued to lenders

46,043

$

26.39

October 2015 through September 2019

185,013

Liability–classified warrants

Issued pursuant to March 2011 equity financing

10,460,875

$

2.88

March 2016

10,645,888

Equity-classified Warrants

In March 2011, the Company granted a warrant to a lender to purchase 70,671 shares of common stock in connection with the refinancing of the Company’s Working Capital Note. See Note 10 for a discussion of the refinancing. The Company determined the fair value of the warrant as of the date of grant was $1.49 per share by utilizing the Black-Scholes model. In estimating the fair value of the warrant, the Company utilized the following inputs: closing price per share of common stock of $2.74, volatility of 64.96%, expected term of 5 years, risk-free interest rate of 2.0% and dividend yield of zero.

- 12 -

Tengion, Inc.

(A Development-Stage Company)

Notes to Financial Statements

(unaudited)

In conjunction with the Working Capital Note, Equipment Note, and the Supplemental Working Capital Note, the Company issued warrants to purchase shares of Series A, B, and C Preferred Stock. Upon the close of the Company’s initial public offering, the preferred stock warrants automatically converted into warrants to purchase 110,452 shares of common stock. Warrants related to the Working Capital Note expire ten years from the date of issuance. Warrants related to the Equipment and Supplemental Working Capital Notes expire the earlier of eight years from the date of issuance or upon acquisition of the Company as defined in the warrant agreement.

Liability-classified Warrants

In March 2011, the Company issued warrants to purchase 10,460,875 shares of common stock in connection with a private placement transaction (see Note 11). Each warrant is exercisable in whole or in part at any time until March 4, 2016 at a per share exercise price of $2.88, subject to certain adjustments as specified in the warrant agreement. The Company valued the warrants as derivative financial instruments as of the date of issuance (March 4, 2011) and will continue to do so at each reporting date, with any changes in fair value being recorded on the Statement of Operations. During the three months ended March 31, 2011 and 2012, the Company recorded non-operating income of $0.4 million and non-operating expense of $0.5 million, respectively, due to changes in the estimated fair value of these warrants.

The warrants contain provisions that require the modification of the exercise price and shares to be issued under certain circumstances, including in the event the Company completes subsequent equity financings at a price per share lower than the then-current warrant exercise price. In addition, the warrants contain a net cash settlement provision under which the warrant holders may require the Company to purchase the warrants in exchange for a cash payment following the announcement of specified events defined as Fundamental Transactions involving the Company (e.g., merger, sale of all or substantially all assets, tender offer, or share exchange) or a Delisting, which is deemed to occur when the common stock is no longer listed on a national securities exchange. The net cash settlement provision requires use of the Black-Scholes model in calculating the cash payment value in the event of a Fundamental Transaction or a Delisting.

The net cash settlement value at the time of any future Fundamental Transaction or Delisting will depend upon the value of the following inputs at that time: the price per share of the Company’s common stock, the volatility of the Company’s common stock, the expected term of the warrant, the risk-free interest rate based on U.S. Treasury security yields, and the Company’s dividend yield. The warrant requires use of a volatility assumption equal to the greater of (i) 100%, (ii) the 30-day volatility determined as of the trading day immediately following announcement of a Fundamental Transaction or Delisting, or (iii) the arithmetic average of the 10, 30, and 50-day volatility determined as of the trading day immediately following announcement of a Fundamental Transaction or Delisting.

The fair value of the warrants is determined using a risk-neutral lattice methodology within a Monte Carlo analysis to model the impact of potential modifications to the warrant exercise price and to include the probability of a Fundamental Transaction or Delisting into the calculation of fair value. The valuation of warrants is subjective and is affected by changes in inputs to the valuation model including the price per share of the Company’s common stock, assumptions regarding the expected amounts and dates of future equity financing activities, assumptions regarding the likelihood and timing of Fundamental Transactions or a Delisting, the historical volatility of the stock prices of the Company’s peer group, risk-free rates based on U.S. Treasury security yields, and the Company’s dividend yield. Changes in these assumptions can materially affect the fair value estimate. We could, at any point in time, ultimately incur amounts significantly different than the carrying value. For example, as of March 31, 2012, the fair value of $3.0 million exceeded the calculated cash settlement value of $2.3 million. The Company will continue to classify the fair value of the warrants as a liability until the warrants are exercised, expire, or are amended in a way that would no longer require these warrants to be classified as a liability.

- 13 -

Tengion, Inc.

(A Development-Stage Company)

Notes to Financial Statements

(unaudited)

The following table summarizes the calculated aggregate fair values and net cash settlement value as of the dates indicated along with the assumptions utilized in each calculation.

Fair value as of:

Net cash settlement value as of

March 31, 2012

December 31, 2011

March 31,

2012

Calculated aggregate value

$

2,511

$

3,034

$

2,301

(1)

Exercise price per share of warrant

$

2.88

$

2.88

$

2.88

Closing price per share of common stock

$

0.47

$

0.56

$

0.56

Volatility

93.8

%

94.5

%

100.0

%(2)

Probability of Fundamental Transaction or Delisting

28.9

%

28.8

%

Not applicable

Expected term (years)

Not applicable

Not applicable

3.9

Risk-free interest rate

0.7

%

0.8

%

0.8

%

Dividend yield

None

None

None

(1)

Represents the net cash settlement value of the warrant as of March 31, 2012, which value was calculated utilizing the Black-Scholes model specified in the warrant.

(2)

Represents the volatility assumption used to calculate the net cash settlement value as of March 31, 2012.

(13)

Stock-Based Compensation

The Company currently maintains two stock-based compensation plans. Under the 2004 Stock Option Plan (the 2004 Plan), stock awards were granted to employees, directors, and consultants of the Company, in the form of restricted stock and stock options. The amounts and terms of options granted were determined by the Company’s compensation committee. The equity awards granted under the Plan generally vest over four years and have terms of up to ten years after the date of grant, and options are exercisable in cash or as otherwise determined by the board of directors. There are no shares available for future grants under the 2004 Plan, as grants from the 2004 Plan ceased upon the Company’s initial public offering in April 2010.

The 2010 Stock Incentive and Option Plan (2010 Plan) became effective upon the closing of the Company’s initial public offering. Under the 2010 Plan, stock awards may be granted to employees, directors, and consultants of the Company, in the form of restricted or unrestricted stock, stock appreciation rights, cash-based or performance share awards and stock options. The amounts and terms of awards granted are determined by the Company’s compensation committee. The equity awards granted under the Plan generally vest over four years and have terms of up to ten years after the date of grant, and options are exercisable in cash or as otherwise determined by the board of directors. The 2010 Plan allows for the transfer of forfeited shares from the 2004 Plan. As of March 31, 2012, 344,792 shares of common stock were available for future grants under the Plan.

- 14 -

Tengion, Inc.

(A Development-Stage Company)

Notes to Financial Statements

(unaudited)

Stock Options

The following table summarizes stock option activity under the Plans:

Number of shares

Weighted-average exercise price

Weighted-average remaining contractual term (in years)

Aggregate intrinsic value (in thousands)

Outstanding at December 31, 2011

1,746,970

$

1.68

8.9

$

63

Granted

734,751

$

0.60

Exercised

(19,187

)

$

0.44

Forfeited

(54,971

)

$

2.67

Outstanding at March 31, 2012

2,407,563

$

1.34

9.0

$

151

Vested and expected to vest at March 31, 2012

2,209,632

$

1.37

9.0

$

138

Exercisable at March 31, 2012

474,135

$

2.81

7.3

$

23

Total stock-based compensation expense recognized for stock options to employees and non-employee directors for the three months ended March 31, 2011 and 2012 was $0.3 million and $86,000, respectively. As of March 31, 2012, there was $1.0 million of unrecognized compensation expense, net of forfeitures, related to unvested employee stock options and $2,000 of unrecognized compensation expense related to unvested non-employee director stock options. The unrecognized compensation expense is expected to be recognized over a weighted-average period of approximately 3.5 years.

Total stock-based compensation expense recognized for stock options to non-employees for the three months ended March 31, 2011 and 2012 was immaterial.

The following table summarizes restricted stock activity under the Plans:

Number of shares

Weighted-average grant date fair value

Nonvested at December 31, 2011

139,779

$

2.42

Granted

678,584

$

0.51

Vested

(51,087

)

$

2.42

Forfeited

(7,658

)

$

2.34

Nonvested at March 31, 2012

759,618

$

0.71

Total stock-based compensation expense recognized for restricted stock to employees for the three months ended March 31, 2012 was $49,000. As of March 31, 2012, there was $0.5 million of unrecognized compensation expense, net of forfeitures, related to unvested employee restricted stock. The unrecognized compensation expense is expected to be recognized over a weighted-average period of approximately 3.7 years.